Contract analysis

1. Plaintiff Driftwood Absolute Return Fund Ltd. ("Driftwood" or "DARF"), a Cayman Islands exempted company, brings this action against Meridian Prime Capital LLC ("Meridian Prime" or "MPC"), its Managing Member and Chief Executive Officer Viktor Andreyevich Zelenko ("Zelenko"), its Chief Financial Officer Irene Maria Carvallo ("Carvallo"), and its Head of FX Trading Dmitri Pavlovich Sobchak ("Sobchak") (collectively

2. Meridian Prime, operating as a purported foreign exchange ("FX") prime brokerage, induced Driftwood to enter into an ISDA Master Agreement (2002 form) and an associated Credit Support Annex (the "CSA"), under which Driftwood deposited substantial margin collateral and traded FX forwards and vanilla FX options in major currency pairs. Rather than executing and settling legitimate trades on Driftwood's behalf, Defen

3. The fraud was discovered on July 18, 2023, when Driftwood's Chief Operating Officer and Chief Compliance Officer, Sandra Hu, initiated a routine margin reconciliation as part of Driftwood's ongoing risk management procedures and confirmed directly with Bridgemont Bank NA — the financial institution at which Meridian Prime maintained its operating and client accounts — that Meridian Prime's client accounts held onl

4. Through this Complaint and the investigation conducted by Driftwood's counsel, Calderwood & Harkness LLP, it has been determined that the misappropriated funds were diverted to offshore bank accounts held by a sham British Virgin Islands entity controlled by Zelenko, an irrevocable trust established by Zelenko for the benefit of his family, real estate purchased through a Zelenko-controlled Delaware limited liabil

5. By this action, Driftwood seeks compensatory damages of at least $47.3 million, prejudgment interest at the statutory rate of nine percent (9%) per annum pursuant to CPLR § 5004, attorneys' fees and costs pursuant to the contractual fee-shifting provision in the ISDA Master Agreement, punitive damages on account of Defendants' willful, wanton, and malicious conduct, the imposition of a constructive trust on all as

6. Plaintiff Driftwood Absolute Return Fund Ltd. ("Driftwood" or "DARF") is an exempted company incorporated and registered under the laws of the Cayman Islands. Its registered address is c/o Hargrove Corporate Services Ltd., 4th Floor, Windward House, 94 Elgin Avenue, George Town, Grand Cayman KY1-1104, Cayman Islands. Its Cayman Islands Registration Number is MC-349217.

7. Driftwood is managed by Driftwood Capital Management LP ("DCM"), a Delaware limited partnership with its principal offices at 590 Madison Avenue, 28th Floor, New York, New York 10022 (Delaware File No. 7831294). The general partner of DCM is Driftwood Capital Management GP LLC, a Delaware limited liability company. DCM serves as the investment manager of Driftwood and is responsible for all investment decisions, i

8. Driftwood is a multi-strategy absolute return hedge fund with significant allocations to global macro and FX volatility strategies. As of June 30, 2023, Driftwood's approximate assets under management ("AUM") were $1.82 billion. Driftwood's Chief Investment Officer is Marcus Ellison. Its Chief Operating Officer and Chief Compliance Officer is Sandra Hu.

9. Driftwood's fund administrator is Pinnacle Fund Services (Cayman) Ltd. Its independent auditor is Graystone & Whitfield LLP. Its prime broker for equities and interest rates products is Halcyon Securities Inc. For its FX forward and FX options trading, Driftwood entered into the ISDA Agreement with Meridian Prime, as further described herein. B. Defendants.

1. Meridian Prime Capital LLC.

10. Defendant Meridian Prime Capital LLC ("Meridian Prime" or "MPC") is a New York limited liability company, with a registered address at 140 Broadway, Suite 3510, New York, New York 10005, and Employer Identification Number 84-3217659. Meridian Prime was formed on or about March 14, 2019, pursuant to the New York Limited Liability Company Law.

11. Meridian Prime purportedly engaged in FX prime brokerage services, including the execution and clearing of institutional FX forward transactions, FX options, and FX spot transactions. Meridian Prime held itself out to institutional counterparties, including Driftwood, as a registered and regulated market participant capable of providing institutional-grade FX execution and custody services.

12. Meridian Prime represented to Driftwood that it was registered with the National Futures Association ("NFA") as a swap dealer, a representation that was material to Driftwood's decision to enter into the ISDA Agreement and to entrust substantial margin collateral to Meridian Prime. Upon investigation conducted after the discovery of the fraud, it was determined that Meridian Prime's claimed NFA registration was e

13. The Managing Member and CEO of Meridian Prime is Defendant Viktor Andreyevich Zelenko. The CFO of Meridian Prime is Defendant Irene Maria Carvallo. The Head of FX Trading at Meridian Prime is Defendant Dmitri Pavlovich Sobchak.

14. Meridian Prime maintained its primary operating and client accounts at Bridgemont Bank NA, located at 383 Madison Avenue, New York, New York 10179.

2. Viktor Andreyevich Zelenko.

15. Defendant Viktor Andreyevich Zelenko ("Zelenko") is an individual, born June 3, 1978, a naturalized citizen of the United States, residing at 425 East 58th Street, Apt. 32F, New York, New York 10022. Zelenko is the founder, Managing Member, and CEO of Meridian Prime. He founded Meridian Prime in 2019.

16. Prior to founding Meridian Prime, Zelenko was employed as an FX trader at Bridgemont Bank NA from approximately 2006 through 2015, and thereafter at Clarendon Markets LLC from approximately 2015 through 2018. While at Clarendon Markets, Zelenko was the subject of a disciplinary action by the Financial Industry Regulatory Authority ("FINRA") in 2017, resulting in a censure and monetary fine for unauthorized tradin

17. Zelenko is the sole beneficial owner and controller of Stellaris Trading Ltd., a British Virgin Islands ("BVI") business company (BVI Registration No. 2043871), which, as set forth below, served as a conduit for the receipt and concealment of misappropriated Driftwood funds. Zelenko is also the sole member and controller of Castellan Realty Holdings LLC, a Delaware limited liability company (EIN: 87-1548203), whi

18. Zelenko is the settlor of the Zelenko Family Irrevocable Trust, dated April 8, 2021 (Tax ID: 86-6092411), held by Marlowe Asset Management Trust Company of Delaware. The trust was used as a vehicle to shield assets derived from the misappropriation of Driftwood's funds from creditors.

19. As set forth in greater detail below, Zelenko exercised complete dominion and control over Meridian Prime, commingling the entity's funds with his personal accounts and those of entities he controlled. Zelenko is the alter ego of Meridian Prime and is jointly and severally liable for all damages sustained by Driftwood.

20. Defendant Irene Maria Carvallo ("Carvallo") is an individual, born November 17, 1982, a citizen of the United States, residing at 88 Greenwich Street, Apt. 2704, New York, New York 10006.

21. Carvallo is a Certified Public Accountant ("CPA"). Prior to joining Meridian Prime, Carvallo was employed as a senior accountant at Ledgerfield & Associates PC. Carvallo served as the CFO of Meridian Prime from its inception in 2019. In that capacity, she was responsible for the preparation and dissemination of financial records, including the monthly account statements provided to counterparties such as Driftwoo

22. As described in detail below, Carvallo directly participated in the fabrication of account statements sent to Driftwood and assisted in the concealment of the misappropriation and diversion of Driftwood's funds. Her CPA credentials and prior professional accounting experience were instrumental in giving the falsified statements an appearance of legitimacy and authenticity.

23. Defendant Dmitri Pavlovich Sobchak ("Sobchak") is an individual, born February 22, 1985, a Ukrainian national and lawful permanent resident of the United States, residing at 301 West 57th Street, Apt. 18B, New York, New York 10019.

24. Prior to joining Meridian Prime, Sobchak was employed as an FX desk analyst at Bridgemont Bank NA, where he worked with Zelenko. Zelenko recruited Sobchak to Meridian Prime in 2019, where Sobchak assumed the position of Head of FX Trading.

25. As described in detail below, Sobchak was directly involved in fabricating trade confirmations purporting to show executed FX forward and option transactions that had never occurred, and in executing unauthorized transfers of Driftwood's funds at the direction of Zelenko. JURISDICTION AND VENUE

26. This Court has subject matter jurisdiction over this action pursuant to the Constitution of the State of New York and the New York Civil Practice Law and Rules.

27. This Court has personal jurisdiction over Defendant Meridian Prime Capital LLC because it is a New York limited liability company with its principal place of business located at 140 Broadway, Suite 3510, New York, New York 10005, within New York County.

28. This Court has personal jurisdiction over Defendant Viktor Andreyevich Zelenko because he is a resident of the State of New York, domiciled at 425 East 58th Street, Apt. 32F, New York, New York 10022, within New York County, and because he transacted substantial business in New York County giving rise to Driftwood's claims.

29. This Court has personal jurisdiction over Defendant Irene Maria Carvallo because she is a resident of the State of New York, domiciled at 88 Greenwich Street, Apt. 2704, New York, New York 10006, within New York County, and because she transacted substantial business in New York County giving rise to Driftwood's claims.

30. This Court has personal jurisdiction over Defendant Dmitri Pavlovich Sobchak because he is a resident of the State of New York, domiciled at 301 West 57th Street, Apt. 18B, New York, New York 10019, within New York County, and because he transacted substantial business in New York County giving rise to Driftwood's claims.

31. Venue is proper in New York County pursuant to CPLR § 503 because a substantial part of the events and omissions giving rise to the claims asserted herein occurred in New York County, and the principal offices of Meridian Prime are located in New York County. Each of the individual Defendants resides in New York County.

32. This action is appropriate for assignment to the Commercial Division of this Court because it involves commercial disputes exceeding the monetary threshold for such assignment as established by Rule 202.70 of the Uniform Civil Rules for the Supreme Court and the County Court, and concerns complex financial transactions, the construction and enforcement of commercial agreements, and claims of commercial fraud. FAC

33. On or about December 15, 2021, Driftwood and Meridian Prime entered into an ISDA Master Agreement (2002 form) (the "ISDA Agreement"), a true and correct copy of which is annexed hereto as Exhibit A. The ISDA Agreement governed the terms under which Driftwood and Meridian Prime would enter into FX forward and vanilla FX options transactions, primarily in the EUR/USD, GBP/USD, and USD/JPY currency pairs.

34. Contemporaneously with the execution of the ISDA Agreement, the parties entered into a Credit Support Annex (the "CSA"), a true and correct copy of which is annexed hereto as Exhibit B. The CSA established the margin and collateral requirements applicable to the transactions between Driftwood and Meridian Prime.

35. Under the CSA, Driftwood was required to post initial margin of $12.0 million in cash to Meridian Prime. In addition, the CSA provided that Meridian Prime could issue variation margin calls based on mark-to-market valuations of Driftwood's outstanding positions. These mark-to-market valuations were calculated and provided to Driftwood exclusively by Meridian Prime, and Driftwood relied upon them in assessing its

36. The ISDA Agreement contained, among other provisions, a fee-shifting clause entitling the prevailing party in any dispute arising under the agreement to recover its reasonable attorneys' fees and costs incurred in connection with such dispute. Driftwood specifically relies on this provision in seeking recovery of its attorneys' fees and litigation costs in this action.

37. The ISDA Agreement also contained representations and warranties by Meridian Prime, including that it was duly organized and in good standing, that it possessed all necessary registrations and authorizations to conduct its business as an FX counterparty and prime broker, and that it would perform its obligations under the agreement in accordance with applicable laws and regulations. These representations were fal

38. In entering into the ISDA Agreement and CSA, and in depositing initial and variation margin with Meridian Prime, Driftwood relied upon Meridian Prime's representations regarding its registration status with the NFA as a swap dealer, its trading capabilities and infrastructure, and its financial standing and capacity to serve as a creditworthy counterparty. Each of these representations was false or misleading, an

39. Beginning in January 2022 and continuing through July 2023, a period of approximately eighteen months, Driftwood deposited a cumulative total of $38.5 million in margin collateral with Meridian Prime pursuant to the CSA. This total included the initial margin of $12.0 million and subsequent variation margin payments made in response to margin calls issued by Meridian Prime based on purported mark-to-market valuat

40. The variation margin calls issued by Meridian Prime were based on fabricated mark-to-market valuations that had no basis in actual market conditions or actual trading positions. Defendants used these fraudulent margin calls as a mechanism to extract additional funds from Driftwood, which Defendants then misappropriated and diverted for their own benefit.

41. In addition to the $38.5 million in margin deposits, during the period of the fraud, legitimate FX settlement proceeds in the amount of approximately $8.8 million that were owed to Driftwood from executed trades — including settlement amounts due on FX forward contracts that had genuinely been entered into the market — were intercepted and diverted by Defendants rather than being remitted to Driftwood or credited

42. The total amount of funds misappropriated by Defendants is therefore $47.3 million, consisting of $38.5 million in margin deposits and $8.8 million in intercepted FX settlement proceeds. C. The Fraud Scheme: Fabricated Trade Confirmations and Falsified Account Statements

43. From January 2022 through July 2023, Defendants carried out a systematic and carefully orchestrated scheme to defraud Driftwood. The scheme had two primary components: first, the fabrication of trade confirmations showing purportedly executed FX forward and option transactions that had never been placed in the market; and second, the issuance of falsified monthly account statements that inflated the value of Drif

44. The fabricated trade confirmations were generated by Defendant Sobchak, in his capacity as Head of FX Trading at Meridian Prime. These confirmations purported to document the execution of FX forward contracts and vanilla FX option transactions on Driftwood's behalf in the EUR/USD, GBP/USD, and USD/JPY currency pairs. The confirmations included fictitious transaction details, including trade dates, settlement date

45. The falsified monthly account statements were prepared and disseminated by Defendant Carvallo, in her capacity as CFO of Meridian Prime. Carvallo employed her training and expertise as a CPA to ensure that the statements appeared authentic and internally consistent, reflecting realistic-seeming portfolio performance, mark-to-market valuations, realized and unrealized profit and loss figures, and margin balances.

46. The fabricated account statements reflected purported trading profits of approximately $14.8 million over the eighteen-month period of the fraud — none of which were real. These fictitious profits were used to justify the inflated account balances shown on the statements and to discourage Driftwood from seeking to withdraw a significant portion of its margin or to terminate the relationship.

47. The most recent fabricated account statement, dated June 30, 2023, a true and correct copy of which is annexed hereto as Exhibit C, reflected a total account balance of $52.1 million. This figure included the cumulative margin deposits of $38.5 million, the $8.8 million in intercepted settlement proceeds, and the $14.8 million in purported (but nonexistent) trading profits, less certain amounts purportedly alloca

48. Defendant Zelenko, as Managing Member and CEO of Meridian Prime, directed and oversaw the entire fraud scheme. Zelenko approved the fabrication of trade confirmations by Sobchak, reviewed and authorized the falsified account statements prepared by Carvallo, and personally controlled the disposition of the misappropriated funds. Zelenko was the architect and principal beneficiary of the scheme. D. Diversion of Mis

49. Defendants diverted the $47.3 million in misappropriated funds through multiple channels, as detailed in the following subparagraphs. (i) $18.6 Million Transferred to Offshore Accounts at Palmetto International Bank Ltd.

50. Defendants caused approximately $18.6 million to be transferred from Meridian Prime's accounts at Bridgemont Bank NA to accounts at Palmetto International Bank Ltd., located at 302 Bay Street, Nassau, Bahamas. The receiving accounts at Palmetto International Bank were held in the name of Stellaris Trading Ltd., a BVI business company (BVI Registration No. 2043871). A copy of the BVI corporate registry extract for

51. Stellaris Trading Ltd. was controlled by Zelenko, who was its sole beneficial owner and director. Stellaris had no legitimate business operations, no employees other than a registered agent, no clients, and no revenue from any lawful commercial activity. It was a sham entity, created and maintained solely for the purpose of receiving and concealing funds misappropriated from Driftwood and, upon information and be

52. Defendants caused approximately $12.4 million to be transferred to the Zelenko Family Irrevocable Trust (dated April 8, 2021; Tax ID: 86-6092411), held at Marlowe Asset Management Trust Company of Delaware, located at 1201 North Market Street, Suite 1600, Wilmington, Delaware 19801. A copy of the trust instrument is annexed hereto as Exhibit H.

53. The Zelenko Family Irrevocable Trust was established by Zelenko as settlor on April 8, 2021 — approximately eight months before Driftwood entered into the ISDA Agreement with Meridian Prime. Upon information and belief, the trust was created as part of a premeditated plan to establish a vehicle that could be used to shield assets from creditors, including victims of any future fraud perpetrated by Zelenko through

54. At the time of the discovery of the fraud and the commencement of Driftwood's investigation, approximately $6.2 million in securities and cash remained in the trust. The remainder of the $12.4 million transferred to the trust had been disbursed or invested in a manner that is the subject of ongoing investigation by Driftwood's counsel. (iii) $8.0 Million in Real Estate Purchases Through Castellan Realty Holdings

55. Defendants caused approximately $8.0 million in misappropriated funds to be used by Castellan Realty Holdings LLC (EIN: 87-1548203), a Delaware limited liability company controlled by Zelenko, to purchase two properties in New York City. Corporate records and property purchase documents relating to Castellan Realty Holdings LLC and these acquisitions are annexed hereto as Exhibit G.

56. The first property acquired was a luxury condominium located at 425 East 58th Street, Apt. 32F, New York, New York 10022, purchased in or about June 2022 for a price of $4.85 million. This is the same address at which Zelenko personally resides. The purchase was funded entirely with misappropriated Driftwood funds routed through Castellan Realty Holdings LLC.